Law:

Section:

Section 40(b) of the Income-tax Act, 1961 - Business disallowance - Interest, salary, etc., paid by firm to partner - Assessment years 1993-94 and 1994-95 - Assessee, a civil construction firm, did not maintain books of account - Assessing Officer fixed net income at 8 per cent of contract receipts as against 10 per cent returned by assessee for earlier years, and it was inclusive of all deductions towards payment of salary and interest to partners - Whether in view of such a conditional order assessee was disentitled to further deductions under section 40(b) - Held, yes - Whether Tribunal committed an error in enhancing net income from 8 per cent to 10 per cent without a cross-appeal by revenue demanding such enhancement - Held, yes FACTS The assessee, a civil construction firm, did not maintain the books of account. It returned its income by estimating the net income at 7 per cent of the contract receipts. The Assessing Officer, noticing that net profit returned for the earlier years was 10 per cent, fixed the net income at 8 per cent, which was inclusive of all deductions towards payment of salary and interest to partners. The assessee contested the assessment in the first appeal and claimed deductions towards payment of salary and interest to partner as provided under section 40(b). The Commissioner (Appeals) dismissed the appeal. On further appeal, the Tribunal allowed the deductions claimed by the assessee but fixed the net income at 10 per cent. On appeal : HELD There was enhancement of tax consequent on the order of the Tribunal. On going through the said order, it was found that the assessee pressed for deductions towards payment of salary and interest to partners. The Tribunal also noticed that the estimation of income at 8 per cent by the Assessing Officer was after reckoning the deductions otherwise allowable to the assessee. Therefore, the only option to the Tribunal, on appeal by the assessee, was to reduce the net income if it found reasons for the same. There was no scope for enhancement of net income in the absence of any cross-appeal by the revenue. Therefore, the Tribunal committed an error in enhancing the income from 8 per cent to 10 per…

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